P&P bond

How Did a Fireman Become the Top Executive of a Bonding Company?

Steve GoliaLeave a comment

Get to Know FIA Surety: Patrick Lynch Sr.

How did a fireman become the top executive of a bonding company?

Pat Senior (we have two) grew up in Newark NJ, the oldest of five children.  Since 1943 his family was the owner / operator of The Ark, a Newark restaurant, bar and liquor store.  Pat grew up in the business and at age 19 was thrust into a management role upon the untimely death of his father.

Pat proceeded to run and grow the business over the course of the next 20 years, building up their volume more than 10-fold! The business was concluded when the city took over the Ark property for construction of a new housing project.

For 14 years Pat served the city of Newark as a fireman. He survived the 1967 riots – a tragic period that resulted in the shooting death of his boss, Capt. Mike Moran Sr.

Pat served as a board member and finance chairman for the Shepherds of Youth Charitable Trust in Newark.  He was also chairman of the Veterans Hospital.

He became a professional lobbyist during these years, which gave him contact with group insurance programs and lead to the formation of an insurance company.  In 1979, First Indemnity of America, aka FIA Surety was born under Pat’s leadership!

The company started with six employees and occupied three locations over the years.  Our staff eventually grew to 40.  Our home office is now in beautiful Morris Plains, NW of Newark, NJ.

For FIA Surety, the “big break” came when an active writer of subdivision bonds withdrew from the market in 1980.  We moved in, filled the vacuum, and have been a major writer of site and subdivision bonds ever since!

Today Pat is still “captain of the ship” FIA Surety, and is also a deep-sea fishing captain.  Two of his three children work in the business, and he boasts five grandchildren.

Pat built our business on relationships and he remains accessible to our agents and clients every day.

Office:  (973) 402-1200

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

CE Rescue!

Steve GoliaLeave a comment

It’s May and now you’re a month closer to your insurance license renewal…  Your CE rescue is here!

FIA Surety is proud to announce we have re-opened our free Continuing Education program.  You may know, we are an accredited CE provider in NJ and PA, and can provide the free CE course on your premises.

Give us a call to set up your class.  We are now accepting dates in June.  All the proper safeguards will be used to protect the class participants.

Free CE credits from FIA Surety!  Call us: 856-304-7348

Since 1979, FIA has been your dependable bonding company for Site, Subdivision, Bid and Performance Bonds.

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

 

Surety Bond Challenge: Solve This Problem!

Steve GoliaLeave a comment

A key vendor / supplier is demanding that a GC provide protection for their purchase agreement. However, the project owner did not stipulate a Performance and Payment bond on the contract and none was provided. The work has started and the contractor needs to get materials delivered from the reluctant vendor.

What are the possible solutions that may satisfy the vendor? Choose one!

  1. Issue a Payment Bond on the Purchase Agreement
  2. Issue a Performance & Payment Bond on the Purchase Agreement
  3. Bond the contract in a normal way (100% Performance & Payment)
  4. Issue only a Payment Bond on the contract

(1.) Issue a Payment Bond on the Purchase Agreement?
A. A vendors purchase agreement is not the same type obligation as a construction contract. A bond guaranteeing payment of the purchase agreement would be considered a Financial Guarantee Bond (Why?  See below *) They are more difficult to obtain than a Payment Bond, so that’s not be the best solution.

(2.) So what about issuing a Performance & Payment Bond on the Purchase Agreement?
A. This is also not an option due to the differences between the nature of a purchase agreement and a construction contract.  (Details below *).

(3.) Can we bond the contract in a normal way (100% Performance & Payment)? That Payment bond would cover all vendors, so it would cover the one in question.
A. Bonding a started project is always a red flag. The underwriters initial question is “Why do they want a bond now?” It does seem suspicious, like there may be a problem with the performance of the construction work or the owner received some negative info on the contractor. Maybe the contractor has a problem and the work is in jeopardy.
Another issue is the cost. If a bond was not originally required, the bond cost was not included in the contract price. This means a bond purchased subsequent to the execution of the contract will be paid for out of the contractor’s profit margin. The Principal / GC will be looking for the most inexpensive solution possible.
Keep in mind that the purchase order amount is less than the contract price, so bonding the contract would result in a bond higher (and more expensive) than actually needed.

(4.) Can we issue just a payment bond on the contract?
A. This too will be viewed as a red flag by the underwriters. Who asks for a payment bond but doesn’t want a Performance Bond? That would be unusual.

Summary
We have concluded that it will be difficult to retroactively bond the contract, the amount of the contract is more than the purchase order and only a financial guarantee bond can be issued on the purchase agreement, so a Performance Bond may not be the solution at all!

Our Solution
In this case, we offered Funds Administration instead of a bond. This was an inexpensive alternative, and provided an assurance for the vendor that bills would be paid in a routine manner. (The project owner pays the Funds Administrator who directly pays the vendor.)
Keep in mind, however, that the Funds Administrator has no obligation to the vendor. If there is an unexpected event, such as termination of the contract, the Funds Administrator does not guarantee to the vendor that they will be paid appropriately.  A bond would, if one had been written.

*The nature of purchase orders is different from construction contracts. When issuing a P&P bond on a contract, the surety depends on the fact that the obligee / beneficiary is paying for the work, and that money may be the key to solving any claim or default.

When bonding a purchase order, the obligee / beneficiary (vendor), is not paying – they are receiving payment. That is why a Financial Guarantee Bond must be used, and is why they are harder to obtain.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

(Don’t miss our next exciting article.  Click the “Follow” button at the top right.)

FIA Surety Success Story

Steve GoliaLeave a comment

This was a tough case.

The contractor needed a performance bond. We reviewed the bond request form and noted the bid results: They were 100% below the second bidder!

We obtained the company’s fiscal year end financial statement. Our analysis revealed a negative working capital and their net worth had slipped below zero due to a net loss for the period. Pretty tough…

The agent was not a bonding expert, so it was up to us to find a way to help this account.

Collateral was not an option because of their weakened condition. If it hurts the contractor, it can’t be good for us.

We dug deeper to fully appreciate all of the applicant’s attributes:

  • The bid spread resulted from the fact that the project was specialty work and the second bidder was a general contractor. They would have to hire someone like our client to perform the job. This contributed to their significantly higher price. Also, the applicant documented a good profit margin in their price.
  • There were specific reasons for the net loss. Corrective actions were taken and current financial results were improved.
  • We identified the applicant’s additional financial resources – there were multiple credit lines available (unused) and personal cash.

We wrote the bond! The difference is that FIA has a team of seasoned professionals with many years of experience (since the ’70s!). We know how to get through these tough cases.

Site, Subdivision, Performance and Payment Bonds.

Now you know who to call.

Steve Golia, Marketing Mgr. 856-304-7348

FIA Surety / First Indemnity of America Insurance Company, Morris Plains, NJ

We are currently licensed in: NJ, PA, DE, MD, VA, NC, SC, WV, TN,  FL, GA, AL, OK, TX

FREE CE Credits For You!

Steve GoliaLeave a comment

Here’s some really great news:

FIA Surety is now an accredited Continuing Education provider for the states of New Jersey and Pennsylvania. We have created an Intro to Surety Bonding course that is approved for 3 CE credits.

 

Wait, it gets better… We will provide the course to you FREE OF CHARGE, and for groups of 3 or more, at your NJ or PA location (subject to travel limitations)!!!

Is that possible? 3 free CE credits? Well, yes.  Just complete the attached registration form and email back to us to get on our school calendar.

If you don’t have three or more attendees, you can still get the free CE credits at a seminar held at one of our central locations. Send in the form and we’ll contact you to work out the details.

There! Now tell your colleagues about it.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it! Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

FIA Surety School Registration Form.pdf

Don’t want to miss our next exciting article?  Click the “Follow” link in the upper right corner.

181. How to Get Rid of Surety Bonds and Why You Should

Steve GoliaLeave a comment

“How can I miss you if you don’t go away?”

Performance Bonds are issued by insurance companies – but they are not insurance policies.  When you get to the end of your auto insurance, it will expire if not renewed.  Plus, the company can cancel it in the middle of the year.  Boom, it’s done!  Insurance policies are not “forever.” Click for mood music!

With surety bonds it’s different.  First off, they’re harder to get.  Then, when you finally have it, they don’t expire! And the bonding company can’t cancel a performance bond. So how do they end?

The fact is, people focus on getting surety bonds because they are a mandatory element of many transactions, but they think little of getting rid of the bond – eventually.  Let’s go over why you want to close out a performance bond, and how to do it.

Every performance bond is married to a written contract that is identified in the first part of the bond.  They are married until death – until the contract is completed. If you have a two year contract covered by a Performance and Payment Bond, you have a two year bond, unless the contract is extended. If the contract is amended to a term of 25 months, the bond automatically follows.  If the contract dollar amount is increased, the bond automatically follows.  The point of the bond is to guarantee the Obligee’s (the beneficiary of the bond) satisfaction with the performance of the contract.  So the bond remains in force until the obligee / contract owner accepts the completed contract.

To close out the surety’s obligation, a release or acceptance of the contract by the obligee is needed.  The applicant / principal (contractor) can’t cancel or close the bond.  Only the obligee can end it.

Closing evidence can consist of a Status Inquiry form completed by the obligee.  The questions would be:

If the project IS completed:

Completion date: ___________  Acceptance date: _____________ Final contract amount: $___________

If the project IS NOT completed:

Approximate percentage or dollar amount completed: $_____________________________

Describe any disputes or performance issues on the project: _______________________________

Do you know of any unpaid bills for labor or materials? ____ No ____ Yes  If Yes, please describe: _____________________

Current estimated completion date: ____________________________________

Now that we know how to close out a performance bond, why bother to do it?  There are some very good reasons…

The Surety

  • The surety (bonding company) will conclude the liability on their books when the bond is released.
  • They also immediately earn all the remaining premium. Two good reasons!

The Contractor / Principal

  • That portion of the company’s bonding capacity will be restored to support a new contract.  This helps them qualify for more projects and larger ones. That is the source of their company revenues.
  • The “acceptance” of the work, by the obligee, is the official conclusion of the contract.  It ends the principal’s obligation – except for a “tail” such as a maintenance obligation.
  • When completed, the project is added to the company’s credentials.  They can now list the contract as a successfully completed job.  That’s how their resume is built.
  • The applicant company, it’s owners and spouses have a legal liability that arises through the indemnity agreement (a hold harmless issued to protect the surety.)  It is literally a liability which must be disclosed on their financial statements.  When the bonds are released, this company and personal liability ends.

The Bonding Agent

  • The agent wins too because more bonds can be issued.  And that’s how they make their living.

Conclusion

Everybody wins when the job is closed out and the bond gets released. This is a necessary process that should not be ignored.

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia: 856-304-7348

For more cool bond stuff follow this BLOG in the upper right corner!

186. Bonding Companies: Can’t Live With Them, Can’t Live Without Them

Steve GoliaLeave a comment
  • “I don’t know what you want unless you tell me.”
  • “Nothing is ever enough for you.”
  • “No, those pants don’t make you look fat.”

Sound familiar?  Have you uttered these words?   Were you talking about your romance life, or your bonding company (except for the pants comment.)

It turns out that much of the frustration we have in life arises from a failure to see things from another point of view. Husbands and wives know this.  But the good news is that there is a common solution.  Open communication and good listening skills are the key.  Can this be applied to suretyship?  (For mood music, Click!)

“What’s with all the Questions?!”

This is a good place to start.  Why do bonding companies ask so many questions?  And just when you get to the end of round one, they think up more.  It’s like they don’t ever want it to end!

Answer: To a degree, it doesn’t ever end.  That’s because the credit analysis a surety performs is based on info that constantly changes – and will do so without notice to the surety. They have to keep a finger on the pulse to be confident when issuing bonds.

“Why do I have to give my personal indemnity AND pay a premium for the bonds?”

It seems like the bonding company is taking no risk and they get paid for it!

Answer: Actually, personal indemnity does not guarantee that a surety will not have a net loss on a bond claim.  When a claim occurs, the company owners may already be depleted (trying unsuccessfully to resolve the problem.) When the “stuff” hits the fan, the surety has to foot the bill and the indemnity may be worthless.

“Do these pants make me look fat?”

When contractors start to pursue an excessive work load the bonding company may put the brakes on. They don’t want the company spread too thin with insufficient management and financial resources. Actually, dying from an excessive amount of work (too fat) is more prevalent than the opposite.

The surety wants to be sure the client remains stable and able to perform their work – and thus avoid any possibility of a bond claim.

Conclusion

Are bonding companies unfathomable, impossible to understand? No, it’s just that, unlike insurance companies, they are risk averse.  They operate on a very thin margin and problems (claims) of any size can hurt them.  Their very survival depends on being prudent and conservative.  This means ask questions and move forward with caution.

So now, can you love your surety?  Maybe a little bit…

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site and Subdivision Bonds since 1979 – we’re good at it!  Call us with your next one, Bid and Performance bonds, too.

Steve Golia: 856-304-7348
First Indemnity of America Ins. Co.

Don’t miss our next exciting surety article: “Follow” this blog in the top right hand corner.

184. Surety Bond Quacks Like A Duck

Steve GoliaLeave a comment

Isn’t that a great expression? “If it looks like a duck, swims like a duck…”

This article is about correctly identifying the type of surety bond.  It is a problem we see often: Cases where the wrong app was used, time wasted, etc.  It happened again this past week.

The agent called us with a performance bond need, about $10,000.  They has used a short form application and sent it to another surety that rejected it.  The reason given “the applicant was the principal.”  The applicant is always the principal, so this didn’t help.  We dug deeper.

The client and agent thought they needed a performance (P&P) bond, but we quickly identified it as a Site Bond – most sureties don’t do them. Let’s go through the key questions and characteristics that make it easy to recognize a site bond when it quacks.

Quick Primer:

A Performance and Payment bond guarantees a construction contract in which the Applicant / Principal is paid by the Obligee to perform the work.

Site Bonds are written with the city or township as Obligee, guaranteeing that a developer or property owner will build required “public improvements” at their own expense.

Here are three key questions to get you on the right quack:

1. Who is the Obligee that is requiring the bond?  On site bonds, it is always the township or city whose planning board has approved the project.

2. Is there a construction contract?  On site bonds there is no contract between the township and the property owner or developer. On P&P bonds there is always a contract between the principal and the obligee.

3. How did the need for the bond arise? On site bonds, the township or township engineer writes to the property owner describing the need for the bond, the work it will cover “public improvements” and the dollar value. On P&P Bonds there are written specifications (requirements) and a construction contract that talk about the bond.

Another clue that helped us quack this case was the low dollar amount.  You could get site bonds for less than $5,000 but it would be extremely rare to go that low on a P&P bond.

So now when a site bond lands on your desk, you’ll recognize it.  Any of your commercial clients could need one when they upgrade or modify their property. The next question is to choose a market.  Most sureties don’t write them – but WE DO!

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site Bonds since 1979 – we’re good at it!  Call us with your next one, Bid and Performance bonds, too.

Steve Golia: 856-304-7348
First Indemnity of America Ins. Co.

More cool bond stuff: Follow this BLOG in the upper right corner.

185. Surety Bonds Are Not Fair!

Steve GoliaLeave a comment

Why are some surety bonds better than others? Why can small ones be harder to get than big ones?

Construction companies are among a bonding company’s most important clients. They are the source of Performance and Payment bonds which guarantee their construction contracts. For a bonding company (surety), these are probably the largest and most lucrative transactions. So why would the surety risk losing a client by giving tough terms on an obviously small bond?

There are many different types of surety bonds, and contractors may need a variety of them: Bid bond, performance, payment, maintenance, license, permit, court, are a few. In this article we will discuss why the big ones (large dollar amount) can be easier to get than small ones – even for the same applicant.

The answer to this question lies in the nature of the obligation, not the dollar amount. A good way to illustrate this is to compare a Performance bond to a Wage and Welfare bond.

Performance Bond

Performance and Payment (P&P) bonds concern construction contracts. They guarantee that the applicant will perform the project in accordance with all aspects of the written contract, and they will pay the related bills for suppliers of labor and material.

Wage and Welfare Bond

This type of bond is needed by union contractors (companies that employ union workers.) The W&W bond guarantees that the construction company will pay the union wage rate as required and make the related periodic contributions to the union benefit plans such as the pension and health insurance program.

It’s Just Not Fair!

P&P bonds range in amount from a couple hundred thousand dollars to tens of millions, whereas a W&W bond is often under $100,000. So why can it be easier to get the big one? Why can a $500,000 performance bond be easier to get than a $50,000 union bond?

The answer lies in the nature of the obligation – and the worst case scenarios.

Let’s assume the contractor goes out of business. With a performance bond, the surety steps into the contractors shoes. They must make arrangements to complete the project in accordance with the contract. The beneficiary of the performance bond (aka the obligee, the owner of the contract) continues to pay out the remainder of the contract amount as work progresses. Now they pay the surety performing the completion. This is called the “unpaid contract amount.” Even if the contractor falls flat and has no money personally, the unpaid contract amount is a resource the surety can depend on – and hopefully avoid a net loss on the claim.

The union bond is a promise to pay funds at a future date. It is a financial guarantee – the toughest type of surety obligation. The underwriters will look into their crystal ball… Oh, sorry, we don’t have one.

The surety is guaranteeing the future solvency of the construction company, not an easy task. And if they are wrong, if the contractor cannot make their union payments because they have no money, then there is no money for the surety, either.

Q. Who is likely to pay the wage and welfare claim?

A. The surety (a net loss)

It is the tough nature of some small bonds (wage and welfare, release of lien, supersedeas) that makes them exceptionally hard to get – often requiring full collateral. On the other hand, the surety may give the same applicant a $300,000 performance bond based primarily on just their credit report!

Bottom line: It just ain’t fair, but we never promised it would be – because the nature of the obligation differs. That is the deciding factor, even more than the dollar amount of the bond.

Want to deal with real experts on your next surety bond? FIA Surety, a NJ based insurance company, provides Bid, Performance, Site and Subdivision Bonds.

Steve Golia: 856-304-7348
FIA Surety / First Indemnity of America Insurance Company

For more cool bond stuff “follow” this Blog (Upper right hand corner)

180. Completion, Performance, Site, Subdivision Bonds: What’s the DIF?!

Steve GoliaLeave a comment

Po’boy, hoagie, grinder, heroe, sub: You get the idea. Different names for the same thing. 

So what about these surety bond names?  Over the years I’ve heard them all used for the same transaction. But are they really the same?  No, No, Nooooooooo!  We will explain.

“Who’s” on first: (brief definitions)

Principal – party whose actions are the subject of the bond

Obligee – is the party protected by the bond

Surety – is the bonding company providing the guarantee

  • Performance Bonds: Issued in connection with a contract that is referenced in the bond.  Guarantees that the principal will complete the project on time and in compliance with all written conditions.  The obligee is the beneficiary of the bond and is the “project owner” of the contract (they are hiring the contractor and paying for the work).  The obligee could be a public or private entity. A Dual Obligee Rider could add parties with a financial interest – such as the construction lender. They would share in the bond amount in the event of a claim.
  • Completion Bonds: Issued in connection with a construction loan. These are issued directly to the construction lender and protect the loan.  The lender is not a party to the construction contract.
  • Another version is a Movie Completion Bond for the film industry – guarantees that the new movie gets produced and “in the can.”
  • Site Bonds: Issued in connection with a specific lot.  Could be a business owner modifying the company property, parking lot, driveways, etc.  The public body with jurisdiction over the job site is the beneficiary (obligee.) The bond promises that “public improvements” required by the planning board will be built at the principal’s (property owner’s) expense.  Such work is not paid for by the township.  The township is not party to a construction contract. The principal pays for the work out of pocket, or though a construction loan.
  • Subdivision: This is the same as a site bond, although on a larger scale. The difference is that it involves multiple sites all covered under one bond.  The bond promises that “public improvements” required by the planning board will be built at the principal’s (the land owner / developer’s) expense.  These improvements are later deeded over to the township – such as streets, curbs, lighting, water and sewer lines, etc. These bonds do not concern the building of homes or buildings. The guaranteed work is not paid for by the township.

It’s no surprise that folks use these terms interchangeably.  They all involve the contractor’s performance, but with a slightly different purpose.

You can assume all bond people know these differences.  But can you assume all bonding companies provide these bonds?  No, no,  nooooo!

Developers are the applicants for subdivision bonds, but any business can require a site bond. You need to know that FIA Surety is a leading provider of Site and Subdivision bonds. We write them and we’re good at it!

Next time you need a site, subdivision or performance bond, give us a call.

Steve Golia, Marketing Manager: 856-304-7348.

FIA Surety